Let's Talk About Quarter 1 of 2009

Things are looking bleak for the first quarter of next year. Today marked the fifth straight day of declines for the Dow Jones Industrial average, which historically rises 0.7% in the days leading up to the holidays. The release of horrible economic data in the past five days shows the economy plunging deeper in to recession.

GDP data released today showed a 0.5% contraction in the U.S. economy last quarter. Last quarter was relatively peaceful compared to the current quarter, which is a horrible sign because the real fall out of the financial crisis is being felt now. Some economists expect fourth quarter GDP to be as dismal as -6%. If it comes in that high, it's going to be a long time before our economy, along with the rest of the world, recovers.

Too add insult to injury we're now seeing modified mortgages default. This means that the lender has re-negotiated with the borrower to sweetened the terms of the loan, and the borrower still can't pay. This points us to further deterioration in the housing markets.

It's really simple, we're not going to see an economic recovery until housing prices stabilize and credit loosens up. The fact that we're seeing housing values drop at Depression rates is tough enough but add to that a credit freeze that still haunts financial markets, which ultimately affects businesses, and we're in for a very tought first quarter.

We've seen a lot of companies initiate mass layoffs this quarter and will see more jobs lost in the coming months. This means less spending in our economy and with tighter consumer credit standards people are going to be strapped for money. The big three are still not in the clear after their bailout, bond yields on GM and F debt still price in bankruptcy, which would mean a lot of jobs lost. Not to mention more government funds down the drain.

So, with all this this and a gloomy first quarter to look forward to, I see no reasons right now to buy stocks. I'm still going to be in sell mode until I see a stabilization in the housing markets. We might see a rally as the new administration gets sworn in but that won't last more than a couple days and will be an excellent opportunity to enter in to new short positions.

I bought Jan. 5 Puts on DRYS this morning as I feel the end is near with this company (no, I'm not obsessed!). The CEO seems to be up to his old shady tricks which lead his previous company to, yep you guess it, bankruptcy.

George Economou, the brilliant CEO of DryShips, owns a private company called Cardiff Marine. DRYS would buy ships from Cardiff all the time and entered in to contracts to buy more ships this year. Every time DRYS cancels a contract it pays Cardiff a cancellation fee. Care to guess whose pocket that fee goes too? Better yet, care to guess whose pocket the fee comes from? It seems as if Georgy thinks it's ok to rape the public company in order to fill his pockets.

Did I mention he's a billionaire who has already bankrupted one public company? It's amazing to be how much money has been pumped in to this stock (DRYS) and yet the writing is on the wall. It's merely a matter of time before the company defaults on a loan, or issues more equity further diluting common share holders, or their counter parties start to cancel contracts. Either way it doesn't look good and I definitely want to be positioned to profit off the event that causes this stock to tank.

The rest of this week should be pretty chill as Wall St. gets fully in to holiday mode (yea, no premium whiskey in the punch this year!) and, your boy Nik, takes a well deserved vacation to Bali! I'll be there until Jan. 3rd, 2009. I'll definitely be in touch with the markets but the focus is going to be on the three B's: beer, b*tches, and beaches...haha. Whaaaa??? I haven't taken a vacation in almost two years!!

-Nik

P.S. - The FULL SITE: WWW.BULLYBANK.COM COMING SOON!!!